Question

South Sea Baubles has the following (incomplete) balance sheet and income statement. BALANCE SHEET AT END OF YEAR (Figures in $ millions) Assets 2015 2016 Liabilities and Shareholders' Equity 2015 2016 Current assets $ 105 $ 215 Current liabilities $ 80 $ 105 Net fixed assets 950 1,050 Long-term debt 675 900 INCOME STATEMENT, 2016 (Figures in $ millions) Revenue $ 2,025 Cost of goods sold 1,105 Depreciation 425 Interest expense 255 a&b. What is shareholders’ equity in 2015 and 2016? (Enter your answers in millions.) c&d. What is net working capital in 2015 and 2016? (Enter your answers in millions.) e. What are taxes paid in 2016? Assume the firm pays taxes equal to 35% of taxable income. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) f. What is cash provided by operations during 2016? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) g. Net fixed assets increased from $950 million to $1,050 million during 2016. What must have been South Sea’s gross investment in fixed assets during 2016? (Enter your answer in millions.)

Answer 1

Answer:

South Sea Baubles

1. Shareholders' equity in 2015 and 2016 =   $300  and  $260 respectively.

2. Net working capital in 2015 and 2016 = $25 and $110 respectively.

3. Taxes paid in 2016 = $84.

4. Cash provided by operations during 2016 = $666.

5. South Sea's gross investment in fixed assets = $100 ($105 - $95).

Explanation:

a) Data and Calculations:

BALANCE SHEET AT END OF YEAR (Figures in $ millions)

Assets                                                     2015         2016

Current assets                                       $ 105       $ 215

Net fixed assets                                       950       1,050

Total assets                                         $1,055    $1,265

Current liabilities                                    $ 80       $ 105

Long-term debt                                       675         900

Total liabilities                                       $755     $1,005

Shareholders' equity                           $300        $260

Liabilities and Shareholders' Equity $1,055      $1,265

INCOME STATEMENT, 2016 (Figures in $ millions)

Revenue               $ 2,025

Cost of goods sold   1,105

Gross profit             $ 920

Depreciation              425

EBIT                          $495

Interest expense       255

Profit before taxes  $240

Income taxes (35%)    84

Net Income            $ 156

Cash provided by operations:

Net income =      $156

Depreciation        425

Working capital:

Current assets      110

Current liabilities (25)

Net cash           $666